Most Americans probably don’t care much about yesterday’s move to recognize Jerusalem as the capital of Israel, but the decision-making process that went into it is crucial to understand.

Even as they previewed the move, administration officials seemed unable to offer any kind of account of why this would help the United States. Instead, the focus was on the idea that critics of the move are overstating the prudential case against it. Annie Karni quotes a source who said is that “after all the posturing and a few days of riots, things go back to normal when it comes to the negotiations.”

Josh Rogin reports that Secretary of Defense .

The problem here isn’t so much that Kushner is wrong. It’s that even though he’s right, this is a loopy way to make policy. Probably the whole thing will blow over. Nobody in the region regards the US as an honest broker on Palestinian issues anymore anyway, and most regional leaders don’t care nearly as much about the Palestinian issue as they used to. But the upside here is nonexistent, and the potential downsides are large. It’s a bet with clearly negative expected value, except it’s the American people who are holding the downside.

Which brings me to reports that Trump is looking to slash staff and funding levels at the .

You would not think that just 10 years after a massive financial crisis the American government would be moving aggressively to dismantle prudential regulation of the banking system. But that’s what they are doing here. OFR is the agency that’s supposed to be the Treasury’s eyes and ears. It helps the department understand how financial markets are evolving and where new vulnerabilities may arise. Trump wants to blind the government — not really to save money; the cash involved is trivial — but to make it easier for banks to get away with problematic conduct.

Meanwhile, Trump’s pick to run regulatory policy at the Fed wants to . He’s tapped a bank executive responsible for all kinds of shady foreclosure practices to .

The nature of a banking crisis is you probably won’t have one in any given year, regardless of how shoddy your regulatory framework is. As long as asset prices are trending upward, it just doesn’t matter. In fact, as long as asset prices are trending upward, a poorly regulated banking sector will be more profitable than a well-regulated one.

It’s all good. Unless things blow up. But if your bad policymaking takes us from a one-in-500 chance of a blow-up in any given year to a one-in-20 chance, you’re still in a world where things will probably be fine across even an entire eight-year span in office. Probably.

Trump has taken a lot of risky bets in his life. And though he’s often lost, he’s usually been insulated by his inherited wealth and by his very real skill at structuring deals so other people end up holding a lot of the downside. Any presidency inherently has that kind of structure with or without skill. Presidents suffer when they make mistakes, but other people suffer more. Throughout 2017, America has mostly enjoyed some pretty good luck and a rising economic tide. I hope it holds up.

This is an abbreviated web version of The Weeds newsletter, a limited-run policy newsletter from Vox’s Matt Yglesias. Sign up to , plus more charts, tweets, and email-only content.

The stock bull market is well into its ninth year, and signs of fragility have firms like Bank of America Merrill Lynch looking ahead to the next big crash.

By BAML’s calculation, the next bear market will be in line with past occurrences, and nowhere near as volatile as the 2008, 1998 or 1987 crashes.

Stock bull markets don’t last forever, which is why it’s a useful exercise to start bracing for the next big crash. Or at the very least, it’s helpful to know what kind of damage could result from the inevitable downturn.

In order to do so, Bank of America Merrill Lynch looked at past S&P 500 bear markets — generally defined as a 20% drop — and analyzed the that has accompanied them. To them, the key is looking at the degree of price swings leading up to the crash.

And based on the fluctuations seen during the ongoing 8 1/2-year bull market, the firm forecasts volatility of 18% for the next large downturn, which is right in line with other “classic” bear markets.

BAML says that, based on the current bull market’s volatility, the next bear market will see volatility of 18%.Bank of America Merrill Lynch

Of course, there’s always the risk of a rare occurrence that rocks the market and sends measures of volatility spiking. BAML notes that the Great Depression of 1929 and the global financial crisis (GFC) in 2008 were driven by major systemic shocks, while Black Monday in 1987 and the collapse of hedge fund Long Term Capital Management in 1998 were caused by liquidity-driven meltdowns.

Fear not, says BAML. For one, the market is not at risk of a GFC repeat. The firm says that the huge regulatory response to the crisis, bank deleveraging, and risk transfer to central banks have alleviated the pressures that contributed to that crash.

As for the massive selloffs in 1987 and 1998, BAML argues that volatility at present time is simply too low to match the conditions that preceded those disastrous periods.

“History shows that a shock of this magnitude has never occurred from the current level of volatility,” a group of BAML derivatives strategists led by Benjamin Bowler wrote in a client note.

BAML says that the current volatility regime is nothing like the ones seen before the 1987 or 2008 crashes, and therefore the market isn’t at risk of selling off to that degree.Bank of America Merrill Lynch

But this doesn’t mean it’s time to get cocky. Just because the next bear market is likely to be subdued relative to the worst in history doesn’t mean it won’t be painful. After all, as BAML points out, “markets remain fragile.”

So as the current bull market extends well into its ninth year, investors would be well-served to keep an eye on the risks that are still out there, lurking in the shadows. Luckily, Morgan Stanley has identified “three x’s” that could send stocks into bear market territory: extreme leverage build-up, exuberant sentiment and excessive policy tightening.

When the financial crisis hit ten years ago, Millennials weren’t affected as much as Baby Boomers or Gen Xers were.

They didn’t lose the bulk of their real estate or stock market value. Most were only teenagers at the time, some as young as eight.

Now young adults, many are earning a good living, and some even have a good chunk of money set aside and are moving up.

But just because they are paid well and have money doesn’t mean prospering Millennials emerged from the financial crisis unscathed. The impact of the crisis, which began 10 years ago this month, is evident in how they spend, save and manage their money, according to a new study from Merrill Edge.

This cohort of affluent Millennials — people ages 18 to 34 who earn more than $50,000 and have $20,000 to $50,000 in investable assets — is taking a more deliberate path. Overwhelmingly they’re delaying major milestone purchases like real estate, cutting back on discretionary spending and taking a fiercely self-sufficient approach to their money. And there’s evidence, according to the study, these decisions are in direct response to the financial crisis.

“Millennials playing it safe, being risk averse and self reliant is very much a reaction to what they saw in the financial crisis,” says Aron Levine, head of Merrill Edge. “They saw that their parents and grandparents lost a great deal of money during that time and they want to be more cautious.”

An overwhelming majority, 85%, say they are likely to “play it safe” with their day-to-day finances.

According to the study, the recession gave Millennials pause when it comes to big life investments. For 78%, the recession was a factor in their decision to buy real estate. For 58% it affected their higher education plans. And for 53%, the financial crisis led them to put off having children.

And they’re well aware these rosy days could end at any time: 80% of affluent Millennials say they’ll see another recession in their lifetime. Three in 10 think it will happen in the next ten years.

Although they are delaying having kids, the top definition of success among these young people is to provide for a family (73%), followed by having a family (52%) and making a difference (41%).

“They want to have kids and a family,” says Levine, “but they want to know they can provide for them first.”

Baby Boomer values like having an impressive résumé and having a million dollars were non-starters for these above-average earning Millennials: only 11% and 9%, respectively, said that was their idea of success.

When asked what they are likely to rely on most in 20 years, Millennial’s top response was their own savings account. While Gen Xers were more likely to say they’d rely on their 401(k) and Baby Boomers on their pension and Social Security, young people were confident they would not be depending on their family, their company, or their government.

While most Americans have a paltry savings rate, 38% of these young people are socking away half of their paycheck. They’re also curbing spending in other ways, including the 54% who say they are cutting back on going out and the 42% who are skipping vacations so they can save more.

Though they are saving, they are retiring the idea of a quaint retirement.

“This idea that I’m going to work for a certain amount of time until I have a certain amount of money and then I can retire, that is no longer the premise,” says Levine. “Retirement as a concept has changed to, ‘I want financial freedom,’ that could be in your 40’s or 60’s or later.”

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By Meg OliverCBS News

Christmas tree shortage’s roots go back to 2008 financial crisis

CLIFTON, N.J. — ‘Tis the season for picking out the perfect Christmas tree. But for many shoppers it’s coming with a bit of sticker shock.

“It was higher than I was expecting,” Kristina Uban told CBS Los Angeles. “And we paid about the same for a bigger tree last year.”

The National Christmas Tree Association says prices are on the rise around 5 to 10 percent in many states. It’s being blamed on a Christmas tree shortage in certain parts of the country.

Christmas tree prices are up in 2017.

CBS News

“And so speaking to my grower, he said, ‘John, I’m not sure if i’m going to be able to give you your entire order this year, so you might start looking around,'” Patton Christmas Tree’s John Patton told CBS Dallas. “All the growers are saying, ‘we’re shorter than usual.'”

It takes 7 to 10 years for a Christmas tree to grow and that’s at the root of the problem.

During the financial crisis nine years ago, cash-strapped americans bought fewer trees. Demand plumetted and growers either went out of business or planted fewer trees.

Christmas trees on the lot in New Jersey.

CBS News

At Fred’s Christmas Trees in New Jersey, owner Fred Dauth said he is seeing a shortage of the larger trees. He said people are rushing to get a tree.

“They’re telling us they’re afraid they can’t get a tree because of the shortage,” Dauth said.

Some of the Christmas trees in Clifton, New Jersey.

CBS News

He thinks he might sell out early this year, but he can’t get his hands on more.

“I asked to get a few hundred more because our truck wasn’t full and they just don’t have them,” Dauth said.

Growers are now planting more trees but it will take time for them to reach full height, which means next year prices, could be higher again.

On Sunday, President Trump suggested those who lost money after the stock market fell 350 points on false reporting by Brian Ross sue ABC News, Breitbart.com reported.

“People who lost money when the Stock Market went down 350 points based on the False and Dishonest reporting of Brian Ross of News (he has been suspended), should consider hiring a lawyer and suing ABC for the damages this bad reporting has caused – many millions of dollars!” Trump tweeted.

People who lost money when the Stock Market went down 350 points based on the False and Dishonest reporting of Brian Ross of @ABC News (he has been suspended), should consider hiring a lawyer and suing ABC for the damages this bad reporting has caused – many millions of dollars!

— Donald J. Trump (@realDonaldTrump) December 3, 2017

According to Breitbart:

Ross was suspended by ABC News for four weeks without pay, after he tried to clarify a report about the investigation.

Ross reported on Friday that Flynn would testify that as a candidate Trump ordered him to contact the Russians, which would be illegal.

The stock market fell more than 350 points on the news.

But hours later, Ross “clarified” his story, saying that Flynn would testify that Trump asked him to contact the Russians after winning the election, which is not against the law.

“Congratulations to ABC News for suspending Brian Ross for his horrendously inaccurate and dishonest report on the Russia, Russia, Russia Witch Hunt,” Trump said on Twitter. “More Networks and ‘papers’ should do the same with their Fake News!”

Congratulations to @ABC News for suspending Brian Ross for his horrendously inaccurate and dishonest report on the Russia, Russia, Russia Witch Hunt. More Networks and “papers” should do the same with their Fake News!

— Donald J. Trump (@realDonaldTrump) December 3, 2017

Initially, Ross reported:

“He has promised full cooperation to the Mueller team. He’s prepared to testify, we are told by a confidante, against President Trump, against members of the Trump family, and others in the White House. He is prepared to testify that President Trump, as a candidate…ordered him and directed him to make contact with the Russians, which contradicts all that Donald Trump has said at this point.”

In a statement, ABC said that Ross’ alleged scoop “had not been fully vetted through our editorial standards process.”

“As a result of our continued reporting over the next several hours ultimately we determined the information was wrong and we corrected the mistake on air and online,” ABC said, without providing a timeline.

The statement concluded:

It is vital we get the story right and retain the trust we have built with our audience — these are our core principles. We fell far short of that yesterday. Effective immediately, Brian Ross will be suspended for four weeks without pay.

Newsbusters reminded readers that this wasn’t Ross’ first blunder:

When the 2012 Aurora movie theater shooting occurred, Ross falsely asserted that the gunman was a “Jim Holmes”who belonged to a Colorado Tea Party group. That was almost immediately debunked as the shooting was carried out by another James Holmes who had nothing to do with the Tea Party.

Ross was also behind the false reports in 2001 that linked Saddam Hussein to the anthrax attacks in the United States that paralyzed the country following the September 11 attacks.

At the end of the day, a suspension is appropriate, but these three errors and still being able to keep your job as the chief investigative correspondent for one of the “big three” networks? Mark it down as yet another reason why people dislike the media.

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Government debt levels will not return to levels seen before the financial crisis until 2060 owing to the UK’s weak growth prospects, according to an influential think tank’s analysis of chancellor Philip Hammond’s Autumn Budget.

Poor productivity forecasts unveiled yesterday by the Office for Budget Responsibility (OBR) forced the independent Budget watchdog to revise down their growth predictions, with long-term implications for the public finances.

Paul Johnson, head of the Institute for Fiscal Studies (IFS), said: “The sorts of modest growth rates currently expected imply that […] it would take us until well past the 2060s for debt to fall to its pre-crisis levels of 40 per cent of national income.”

As the economy crashed following the global financial crisis the government was forced to borrow billions to maintain government spending even as tax revenues collapsed. The Conservative government at first pledged to end public sector borrowing, which adds to the debt pile, by 2015, but has been forced to push its deadline back.

Lower growth prospects mean Hammond’s targets to eliminate the government’s deficit in day-to-day borrowing are even further in the distance. Hammond has committed to balancing the books by the middle of the next decade.

“The chances of that look pretty remote to me,” Johnson said.

The public debt forecasts also assume there are no recessions in the next half century – a highly implausible scenario – meaning the actual return to pre-crisis levels may be even longer.

Economists have struggled to work out why productivity has failed to pick up significantly in the decade since the first rumblings of the financial crisis. The OBR forecasts still assume a rise in productivity above the post-crisis trend, at around one per cent a year, but significantly lower than the 1.7 per cent growth previously estimated.

It is “hard to argue that this is unduly pessimistic,” Johnson said.

The downgrade to growth means the UK economy will be £65bn smaller by 2021 than the government thought in March 2016.

That economic weakness will have grim implications for wages, with average earnings still below their 2008 level in 2021, and £1,400 a year lower on average than forecast in early 2016.

A Senate committee will examine concerns raised by fringe political party the Citizens Electoral Council of Australia that a bill expanding the Australian Prudential Regulation Authority’s financial crisis powers may allow it to commandeer customer deposits.

The Senate economics legislation committee said last week it would look into the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2007 and take submissions until December 18. This came after the Citizens Electoral Council, which has been campaigning for many years on protecting depositors from regulatory “bail-in”, began contacting MPs in recent weeks to express concerns about whether the bill could compromise depositors’ rights.

“Before MPs vote on this bill they must demand to know if its broad language empowers APRA to bail-in deposits,” said Robert Barwick, the research director of the Citizens Electoral Council, which has around 2000 members and is influenced by the ideas of US political activist Lyndon LaRouche.

“Australians would revolt against any resolution regime that confiscates their savings to prop up failing banks, so MPs must ensure that this bill doesn’t legislate such powers under the radar.”

However, legal sources indicate it may be incorrect to interpret the provisions of the bill as giving APRA powers to declare that a particular instrument is capable of conversion or write-off. Rather, instruments will have to have contractual provisions within them that provide for their conversion or write-off before that occurs, one reading of the bill suggests.

The Senate committee wants to understand exactly what capital instruments are covered by the bill, APRA’s consultation process before it makes determinations, and the precise power the executive and parliament is ceding to APRA.

Powers overhauled

It expects to receive submissions or hear evidence from APRA, the Reserve Bank of Australia, the Australian Securities and Investments Commission and the banking sector.

Labor committee member Senator Katy Gallagher told a Citizens Electoral Council member last week that “Labor understands the significance of the changes that such a bill would make in terms of providing powers to APRA. We are consulting with stakeholders and will carefully consider the implications of the bill.”

As part of its supervisory functions, APRA works with banks on ‘resolution plans’ which set out how APRA will manage the failure of that institution.

Treasurer Scott Morrison said in August the new crisis resolution powers bill will “overhaul the powers of APRA during times of financial crisis” by providing APRA with “powerful, flexible and timely tools to resolve financial institutions in distress”.

The draft legislation (introduced on the same day as the Banking Executive Accountability Regime) will give APRA “an expanded set of crisis resolution powers that equip APRA to act decisively to facilitate the orderly resolution of a distressed bank or insurer”, the government added.

Yet the bill is not purporting to change the Financial Claims Scheme, which guarantees deposits up to $250,000. Australian banking law also has a system of “depositor preference”, meaning in the event of a bank failure APRA must direct the first distributions to depositors under the FSC, followed by all deposits in excess of the $250,000 limit. These will be repaid in preference to all other bank creditors, including bond holders or the Reserve Bank.

Mr Barwick said if the government “thinks APRA should have powers to bail-in deposits, they should be open about it, so we can have a public debate about bail-in versus the alternative approach of Glass-Steagall, which would ensure financial stability and protect deposits by separating ADIs from investment banking and all other financial services”.

‘Orderly resolution’

The government’s bill follows a recommendation of the 2014 financial system inquiry, which called for more powers to be put into APRA’s “toolkit” to manage a crisis.

The FSI said this would ensure APRA could achieve an “orderly resolution” of a failing bank. The government has not proposed to create a statutory “bail-in” regime like the ones introduced in parts of Europe.

Among the Citizens Electoral Council policies is to create a Glass-Steagall-type law in Australia to ensure commercial banks are not able to take any significant risks with deposit funding. Glass-Steagall was a US law that separated investment and commercial banking activities in the 1930s; the key provisions were repealed in 1999.

The CEC also supports a national bank to boost the financing of rural Australia. It also believes the “risk weighting” system as applied by APRA has been a key reason for some farmers being denied finance from banks more interested in lending to mortgages, which has inflated a property bubble. It is also sceptical about the global Basel banking rules providing too much power to bureaucrats at the expense of the Parliament.

In her documentary series, In Waiting, Eirini Vourloumis explores the question: how does identity manifest when tomorrow is entirely unpredictable?

The financial crisis that shook Greece can be felt most prominently in its capital, and as such this forms the subject of the documentary photographer, who often works for such publications as The New York Times or Le Monde.

“It stands desolately in the entrance hall to the shipping association in Athens: a dried yucca with only two leaves. The space, which the plant was supposed to enhance, seems to have oppressed and overwhelmed it. Nobody feels responsible for its well-being. More dead than alive, the palm symbolises the state of public spaces in today’s Greece.” Just one of forty images in Vouloumis’ new book, it serves as a poignant metaphor.

Motifs show traces of the past, but are always deserted. Whether it is the sticky-looking decorations and worn walls of a courtroom, bare tax offices, or abandoned funeral parlours, everything is united by the debilitating impression of an idle bureaucracy.

The pictures do not provide answers or interpretations; rather, they invite the viewer to sense—and critically question—Greece’s current situation. What will people in the future think about today’s Athens? What lasting influences will the present day have on the country’s development?

Vourloumis, the daughter of a Greek father and an Indonesian mother, was born and raised in Athens.

In my forthcoming book : The Global Elites’ Secret Plan for the Next Financial Crisis, I make a very simple point: In 1998 we were hours away from collapse and did everything wrong following that. In 2008, we were hours away from collapse and did the same thing. Each crisis is bigger than the one before.

The stock market today is not very far from where it was in November 2014. The stock market has had big ups and downs. A big crash in August 2015, a big crash in January 2016. Followed by big rallies back both times because the Fed went back to “happy talk,” but if you factor out that volatility, you’re about where you were 2 years ago.

People are not making any money in stocks. Hedge funds are not making money. Institutions are not making money. It’s one of the most difficult investing environments that I’ve ever seen in a very long time.

Again, the 2008 crisis is still fresh in people’s minds. People know a lot less about 1998, partly because it was almost 20 years ago. It was an international monetary crisis that started in Thailand in June of 1997, spread to Indonesia and Korea, and then finally Russia by August of ’98. Everyone was building a firewall around Brazil. It was exactly like dominoes falling.

Think of countries as dominoes where Thailand falls followed by Malaysia, Indonesia, Korea and then Russia. The next domino was going to be Brazil, and everyone (including the IMF and the United States) said, “Let’s build a firewall around Brazil and make sure Brazil doesn’t collapse.”

The Next Domino

Then came Long-Term Capital Management… The next domino was not a country. It was a hedge fund, although it was a hedge fund that was as big as a country in terms of its financial footings. I was the general counsel of that firm. I negotiated that bailout. I think a many of my readers might be familiar with my role there. The importance of that role is that I had a front-row seat.

I’m in the conference room, in the deal room, at a big New York law firm. There were hundreds of lawyers. There were 14 banks in the LTCM bailout fund. There were 19 other banks in a one billion dollar unsecured credit facility. Included were Treasury officials, Federal Reserve officials, other government officials, Long-Term Capital, our partners. It was a thundering herd of lawyers, but I was on point for one side of the deal and had to coordinate all that.

It was a $4 billion all-cash deal, which we put together in 72 hours with no due diligence. Anyone who’s raised money for his or her company, or done deals can think about that and imagine how difficult it would be to get a group of banks to write you a check for 4 billion dollars in 3 days.

Those involved can say they bailed out Long-Term capital. They really bailed out themselves. If Long-Term Capital had failed, and it was on the way to failure, 1.3 trillion dollars of derivatives would’ve been flipped back to Wall Street.

The banks involved would’ve had to run out and cover that 1.3 trillion dollars in exposure, because they thought they were hedged. They had one side of the trade with Long-Term and had the other side of the trade with each other. When you create that kind of hole in everyone’s balance sheets and everyone has to run and cover, every market in the world would’ve been closed. Not just bond markets or stock markets. Banks would’ve failed sequentially. It would’ve been what came close to happening in 2008.

Very few people knew about this. There were a bunch of lawyers there, but we were all on 1 floor of a big New York law firm. The Fed was on the phone. We moved the money. We got it done. They issued a press release.

It was like foaming an airport runway. You’ve got a jet aircraft with a lot of passengers and 4 engines on flames, and you foam the runways. The fire trucks are standing by, and somehow you land it and put out the fire. Life went on.

Financial Crisis

After that, the Federal Reserve cut interest rates twice, once at a scheduled FOMC meeting on September 29, 1998, and again at an unscheduled meeting. The Fed can do that. The Fed doesn’t have to have a meeting. They can just do an executive committee-type meeting on the phone, and that’s what they did. That was the last time, in October 15, 1998, that the Fed cut interest rates outside of a scheduled meeting. Though it was done to “put out the fire.” Life went on.

Then 1999 was one of the best years in stock market history, and it peaked in 2000 and then crashed again. That was not a financial panic. It was just a stock market crash. My point is that in 1998, we came within hours of shutting every market in the world. There were a set of lessons that should’ve been learned from that, but they were not learned. The government went out and did the opposite of what you would do if you were trying to prevent it from happening again.

What they should’ve done was banned most derivatives, broken up big banks, had more transparency, etc. They didn’t. They did the opposite.

The government actually repealed swaps regulations, so you could have more derivative over-the-counter instead of trading them on exchanges. They repealed Glass-Steagall so the commercial banks could get into investment banking. The banks got bigger. The SEC changed the rules to allow more leverage by broker-dealers rather than less leverage.

Then Basel 2, coming out of the Bank for International Settlements in Basel, Switzerland, changed the bank capital rules so they could use these flawed value-at-risk models to increase their leverage. Everything, if you had a list of things that you should’ve done to prevent crises from happening again, they did the opposite. They let banks act like hedge funds. They let everybody trade more derivatives. They allowed more leverage, less regulation, bad models, etc.

I was sitting there in 2005, 2006, even earlier, saying, “This is going to happen again, and it’s going to be worse.” I gave a series of lectures at Northwestern University. I was an advisor to the McCain campaign. I advised the U.S. Treasury. I warned everybody I could find.

This is all in my upcoming book, The Road to Ruin. I don’t like making claims like that without backing it up, so if you read the book, I tell the stories. Hopefully, it’s an entertaining and readable, but it’s serious in the sense that I could see it coming a mile away.

Now, I didn’t say, “Oh gee, it’s going to be subprime mortgages here,” the kind of thing you saw if you saw the movie “The Big Short.” Obviously, there were some hedge fund operators who had sussed out the subprime mortgage. To me, it didn’t matter. When I say it didn’t matter, the point that I was looking at was the dynamic instability of the system as a whole.

I was looking at the buildup of scale, the buildup of derivatives, the dynamic processes and the fact that one spark could set the whole forest on fire. It didn’t matter what the spark was. It didn’t matter what the snowflake was. I knew the whole thing was going to collapse.

Too Big To Fail

Then, we come up to 2008. We were days, if not hours, from the sequential collapse of every major bank in the world. Think of the dominoes again. What had happened there? You had a banking crisis. It really started in the summer of ’07 with the failure of a couple of Bear Stearns hedge funds, not Bear Stearns itself at that stage but these Bear Stearns hedge funds that started a search.

There was one bailout by the sovereign wealth funds and the banks, but then beginning in March 2008, Bear Stearns failed. In June, July 2008, Fannie and Freddie failed. Followed by failures at Lehman and AIG. We were days away from Morgan Stanley being next, then Goldman Sachs, Citibank followed by Bank of America. JPMorgan might’ve been the last one standing, not to mention foreign banks (Deutsche Bank, etc.).

They all would’ve failed. They all would’ve been nationalized. Instead, the government intervened and bailed everybody out. Again, for the second time in 10 years. We came hours or days away from closing every market and every bank in the world.

For the everyday investor, what do you have? You’ve got a 401k. You’ve got a brokerage account. Maybe you’re with E-Trade or Charles Schwab or Merrill Lynch or any of those names. You could run a pizza parlor, an auto dealer. You could be a dentist, a doctor, a lawyer, anyone with a small business. You could be a successful investor or entrepreneur.

You’ve got money saved and you’re looking at all of that wealth being potentially wiped out as it almost was in 1998 and in 2008.

How many times do you want to roll the dice? It’s just like playing Russian Roulette. One of these times, and I think it’ll be the next time, it’s going to be a lot bigger and a lot worse.

To be specific, I said in 1998 the government, regulators and market participants on Wall Street did not learn their lesson. They did the opposite of what they should do. It was the same thing in 2008. Nobody learned their lesson. Nobody thought about what actually went wrong. What did they do instead? They passed Dodd-Frank, a 1,000-page monstrosity with 200 separate regulatory projects.

They say Dodd-Frank ended “too big to fail.” No, it didn’t. It institutionalized “too big to fail.” It made “too big to fail” the law of the land, because they haven’t made the banks smaller.The 5 biggest banks in the United States today are bigger than they were in 2008. They have a larger percentage of the banking assets. They have much larger derivatives books, much greater embedded risk.

People like to use the cliché“kick the can down the road.” I don’t like that cliché, but they haven’t kicked the can down the road. They’ve kicked the can upstairs to a higher level. From hedge funds to Wall Street, now the risk is on the balance sheet of the central banks.

World Money

Who has a clean balance sheet? Who could bail out the system? There’s only organization left. It’s the International Monetary Fund (IMF). They’re leveraged about 3 to 1. The IMF also has a printing press. They can print money called Special Drawing Rights (SDR), or world money. They give it to countries but don’t give it directly to people. Then the countries can swap it for other currencies in the SDR basket and spend the money.

Here’s the difference. The next time there’s a financial crisis they’ll try to use SDR’s. But they’ll need time to do that. They’re not going to do it in advance and they’re not thinking ahead. They don’t see this coming.

What’s going to come is a crisis, and it’s going to come very quickly. They’re not going to be able to re-liquefy the system, at least not easily.

Regards,

Jim Rickards

Crux note: According to Jim, the best way to protect your wealth in the coming crisis is to own physical, non-digital assets like gold. But there is also a way to profit handsomely from the carnage… According to Jim, 1,000% (or more) returns are possible. He explains all the details right here. (This does not link to a long video)

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We’re sharing a full presentation from our private conference, which costs as much as $15,000 to gain access to. And the speaker gives away one of his latest recommendations on stage (a stock he says could triple in 18 months). See it right here at zero cost –but ONLY until Oct. 31 at midnight.

a downbeat David Einhorn exclaimed “will this market cycle never turn?”

Despite solid Q3 performance, Einhorn admitted that “the market remains very challenging for value investing strategies, as growth stocks have continued to outperform value stocks. The persistence of this dynamic leads to questions regarding whether value investing is a viable strategy. The knee-jerk instinct is to respond that when a proven strategy is so exceedingly out of favor that its viability is questioned, the cycle must be about to turn around. Unfortunately, we lack such clarity. After years of running into the wind, we are left with no sense stronger than, ‘it will turn when it turns’.”

Such an open-ended answer, however, is a problem for a fund which famously opened a basket of “internet shorts” several years prior, and which have continued to rip ever higher, detracting from Greenlight’s overall performance.

This, in turn, has prompted Einhorn to consider the unthinkable alternative: “Might the cycle never turn?” In other words, is the market now permanently broken.

While the Greenlight founder did not explicitly answer the question, in a speech yesterday at The Oxford Union in England, Einhorn made it extremely clear just how farcical he believes this market, and world, has become, pointing out that the problems that caused the global financial crisis a decade ago still haven’t been resolved.

“Have we learned our lesson? It depends what the lesson was,” Einhorn, the co-founder of New York-based Greenlight Capital, said at the Oxford Union in England on Wednesday.

Infamous for his value investing style and bet against Lehman Brothers that paid off in the crisis, Bloomberg reports that Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail.

The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market “could have been dealt with differently,” and in the “so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.”

“If you took all of the obvious problems from the financial crisis, we kind of solved none of them,”Einhorn said to a packed room at Oxford University’s 194-year-old debating society.

Instead, the world “went the bailout route.”

“We sweep as much under the rug as we can and move on as quickly as we can,” he said.

Einhorn didn’t avoid discussing his underperformance, citing several failed bets that companies’ stocks would decline. He didn’t name the stocks he was shorting, but insisted that none of the companies are “viable businesses.”

Value investing has worked over time, but “it’s not working at all right now,” and in fact “the opposite seems to be working,” he said.

Greenlight remains focused on developed markets, and has no plans to change that, he said.

Given the performance of certain stocks, we wonder if the market has adopted an alternative paradigm for calculating equity value. What if equity value has nothing to do with current or future profits and instead is derived from a company’s ability to be disruptive, to provide social change, or to advance new beneficial technologies, even when doing so results in current and future economic loss?

It’s clear that a number of companies provide products and services to customers that come with a subsidy from equity holders. And yet, on a mark-to-market basis, the equity holders are doing just fine.

Ah yes, the Fed-funded “deflation trade” which lowers prices for goods and services courtesy of ravenous investors who will throw money at any “growth” idea, without considerations for return or profit, because – well – more such investors will emerge tomorrow. After all, in this day and age of ZIRP, what else will they do with their money.